If you want to get a mortgage – or a re-mortgage – in 2017, some forward planning is going to help. You are probably focussed on saving a deposit, but it’s good to keep a watch on three other things: your credit record; your debt and your expenses.
Check your credit records in detail
Do this now, so if anything that is wrong, you have plenty of time to get it corrected. A stranger’s parking ticket default showing in your name; a CCJ for a water bill from your previous property; an overdue mobile bill for a phone you had returned as faulty several years ago … I hope you don’t find any of these sorts of horrors when you look, but better safe than sorry.
There are three Credit Reference Agencies in Britain: Experian, Equifax and Call Credit. Some lenders only report to one, so to be sure you have the full picture, you need to check all three. You don’t need to sign up to expensive monthly services, you can now keep an eye on your score with each CRA for free, see How To Check your Credit Score for details. Of course if one looks wrong, you will need to get the full details and find out why.
Assuming this is all fine now, you want to keep it that way. Paying bills by direct debit is good. Keep an eye out for closing bills if you do switch electricity or mobile suppliers, as this is a common cause of difficulties. Even better, don’t switch anything in the last few months before a mortgage application!
Have a plan for your debts
Everyone knows that a poor credit record is a problem for a mortgage application. But perfectly managed debt can also cause difficulties if there is too much of it.
The mortgage lender’s definition of “too much” may not be the same as yours… You may feel comfortable with that large looking credit card balance because you know it’s all at 0% interest. But to a bank, it is something that could go wrong in the future: if you miss a payment or can’t shift it to another 0% deal at the end of the term, your monthly payments could get a lot larger.
I’m not saying you have to be debt-free – although that is a great aim! But here is a plan for the run up to a mortgage application:
- Your debts need to be clearly falling every month;
- Overpay all your credit cards, even those at 0%. Lenders can see from your credit records if you are only making a minimum payment;
- Think about closing cleared cards. It’s not good to be using most of your credit limit, but lenders also don’t like you to have masses of unused credit – they worry you will go on a credit card spending spree to furnish the new house. So keep one card with spare credit but close others;
- Don’t make any new credit applications in the last few months. Keep that car a while longer! If you have a 0% deal ending, apply for a new one earlier – a new form of credit usually makes your credit score drop for a month or two;
- No payday loans in the year before applying for a mortgage. Even if they are repaid on time, most mortgage lenders think they show you have money problems and will reject an application;
- Going over your approved overdraft limit is another big mistake. If you are often close to the limit, find ways to be drawing back further from it each month by cutting your expenses.
Don’t waste any time thinking about whether you could borrow to increase your deposit. A mortgage lender won’t think that has improved your situation. If your deposit is large, it is better to use some of it to pay off your other debts.
Keep those expenses down
In 2014 the mortgage lending rules were changed and banks now have to look closely at how “affordable” the mortgage is for you. This may come as a surprise if you got a mortgage a few years ago and are now looking to move – the application process is now a lot longer. You will have to complete a form giving details of your regular expenses and supply 3-6 months bank statements.
So in the last six months you need to avoid any unnecessary expenditure. Some lump sums are fine – renewing your car insurance say. But if you are going to apply for a mortgage in spring, don’t overspend at Christmas and give the skiing holiday a miss this year. Generally keep entertaining costs low – you may feel happy you could cut back if you were in difficulty, but to a lender spending a few hundred on eating out each month is going to go down as a regular expenditure.
Of course any money saved here is going to also help you pay off some more debt or increase your deposit.
The time to start is now
By starting this 6 months ahead you will be maximising your chance of getting the best possible mortgage deal – and a year is even better!